Interested In Netcare's (JSE:NTC) Upcoming R0.35 Dividend? You Have Three Days Left

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Netcare Limited (JSE:NTC) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Netcare investors that purchase the stock on or after the 24th of January will not receive the dividend, which will be paid on the 29th of January.

The company's upcoming dividend is R0.35 a share, following on from the last 12 months, when the company distributed a total of R0.70 per share to shareholders. Looking at the last 12 months of distributions, Netcare has a trailing yield of approximately 4.8% on its current stock price of ZAR14.55. If you buy this business for its dividend, you should have an idea of whether Netcare's dividend is reliable and sustainable. So we need to investigate whether Netcare can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Netcare

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Netcare paid out more than half (69%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Netcare generated enough free cash flow to afford its dividend. It paid out more than half (68%) of its free cash flow in the past year, which is within an average range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Netcare, with earnings per share up 2.9% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Netcare's dividend payments are effectively flat on where they were 10 years ago.

To Sum It Up

Is Netcare an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and Netcare paid out a bit over half of its earnings and free cash flow last year. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

If you're not too concerned about Netcare's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, we've found 3 warning signs for Netcare that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.